CRB INDEX STILL TESTING JUNE LOW -- A REVIEW OF SOME COMMODITY INVESTMENTS

CRB INDEX TESTING JUNE LOW ... Last week I showed the Reuters/Jefferies CRB Index slipping beneath its 200-day moving average and warned that it was starting to look toppy. The real key to the chart, however, is the ability of CRB Index to stay above its June low at 329.61. As long as it does, the CRB is just in a three-month trading range. A decisive close beneath the June low, however, would make a top more likely. Chart 1 is plotted through yesterday (Monday). The CRB bounced today, but is still beneath the 200-day line. More importantly, it's still trading above the June low. I suggested last week that it might be time to "lighten up" on some commodity holdings -- especially if the June low is broken. I've gotten several requests to elaborate on that.

Chart 1

SOME COMMODITY FUNDS ... One reader asked about two investments that deal directly with commodity investments -- one an ETF and another a mutual fund. Chart 2 shows the DB Commodity Tracking Index (DBC) which is a commodity-based Exchange Traded Fund. The DBC has broken its late-July low and is trading beneath its 50-day moving average which means that its "short-term" trend is down. At the same time, however, it's in the process of testing a rising support line drawn under its March/June lows. That means that the major trend is still up, but is being tested. I generally favor some short-term profit-taking in any instrument that breaks its 50-day line. Those with a longer time horizon, however, can justify holding on as long as the green support line isn't broken. Chart 3 shows the PIMCO Commodity Real Return Strategy Fund (PCRIX). It's actually held up better than the CRB Index (which I suspect is due to a lower energy weighting). The chart shows the commodity mutual fund still trading over its moving average lines and its June/July reaction lows at 14.58 and 13.97. So far, the fund shows little or no damage done to its longer-term uptrend. As long as those support levels hold, there's no urgent reason to sell.

Chart 2

Chart 3

ENERGY SPDR STILL TRADING OVER 50-DAY LINE ... One of the biggest commodity investments is in energy funds. Which brings us to the Energy Select SPDR (XLE). Chart 4 shows the XLE stalled beneath its spring highs. It's too soon to call that a top, but it bears watching. The daily MACD lines have turned negative which is another short-term caution sign. More importantly, however, the XLE remains over its 50-day moving average. It's one thing to warn of possible weakness. It's another to actually see it happen. Here again, there's no urgent reason to bail out of the XLE as long as it continues to trade over its 50-day line. A close beneath that support line (or the August low near 56) would, in my opinion, justify some profit-taking.

Chart 4

PRECIOUS METALS REACT TO DOLLAR MOVES ... More than any other commodity, gold is very influenced by dollar trends. Gold jumped $13 on Monday on a dollar drop, then gave some back today on a dollar bounce. Neither move has had much impact on the trend of the StreetTracks Gold Trust Shares(GLD) which is sideways. Chart 5 shows the GLD bouncing off its June low near 60 and climbing back over its 50-day average. Chart 6 shows the Silver Trust iShares (SLV) staying above its mid-August low at 117.76. The PHLX Gold and Silver (XAU) Index is still stuck in a short-term trading range. It needs a close over 150 to resume its uptrend. Here's the tough part. I've suggested before that economic slowing usually results in lower commodity markets. That's why I've turned more cautious on the group in general. A weaker dollar, however, (which often is the result of a slower U.S. economy) could still be positive for precious metals. Last Thursday, I suggested "lightening up" in those commodity areas that show signs of weakness. As the preceding charts show, however, no serious breakdowns have yet occurred. To a large extent, the fate of commodity markets rests with the stock market. That's because commodity peaks usually follow stock market peaks. Both peaks are usually the result of economic slowing.

Chart 5

Chart 6

Chart 7

A LITTLE TIME OUT ... As the dog days of August draw to a close, I've been taking a few days off here and there in lieu of a full vacation. That's been made easier by the trendless nature of most financial markets. I'm going to take advantage of the lull to take a couple of more days off this week. That means that there won't be any market messages tomorrow (Wednesday) or Thursday. I should be back in time for a weekend wrap up however. Although I love the summer, I've already started looking forward to the cooler autumn here in the northeast. The cooler air usually shakes us out of our summer lethargy. Hopefully, it will do the same for the markets. In the meantime, enjoy what's left of the summer.